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Manufacturers still feel confident despite output decline

The output of the UK manufacturing sector is continuing its slowdown, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

In the latest report, BDO’s Output Index – which indicates how businesses expect their order books to develop over the next three months – has declined to 99.9, from 100.3 in August.

This marks the first time that the index has been below its long-term growth trend of 100 since June of last year. The decline was primarily driven by a fall in the BDO Manufacturing Output Index, which dropped 2.7 points to 97.6 from 100.3 in August. This fall follows on from a drop of 5.6 points from July to August, suggesting a rapid slowdown in growth for the UK manufacturing sector.

The BDO Services Output Index also registered a small decline, falling 0.1 to 100.2, contributing to the overall lower index reading.

However, despite the decline in output growth, the UK’s manufacturers still feel confident. BDO’s Manufacturing Optimism Index – which indicates how optimistic firms within the sector are about their future order books – remains high at 108.7, only dropping 0.2 from August. In addition, the Services Optimism Index increased 0.1 to 102.4 this month.

Manufacturers are still optimistic and confident of their future order books despite a drop in the Output Index / Picture: Getty/iStock

The difference between output and optimism suggests that businesses expect growth in their order books to increase towards the end of the year. However, BDO’s Inflation Index, which is now at its highest level since December 2012 standing at 101.4, indicates that manufacturers’ input prices will continue to increase.

Commenting on the findings, Tom Lawton, Partner and Head of Manufacturing, BDO LLP, said: “Manufacturers hoped for a boost post the Brexit related fall in sterling. But it seems clear that modern manufacturing supply chains are inherently transactional and complex. As a result, UK manufacturers seem not to have benefited much from the expected boost to their competitiveness. And there has to be a suspicion that fears of the damage that could be done by a poorly negotiated Brexit are beginning to weigh heavily upon our makers.”

“The task of government is clear: it needs to deliver a Brexit that minimises disruption to our economy. At the same time, the UK’s low productivity – likely caused by underinvestment and an education system that historically failed to deliver – continues to be the other major challenge for our economy. Much excellent work has been done to improve our schools over the last twenty years, which shows what can be done when government gets it right.”